Ask Money

A Healthy Bank

Chris Farrell Aug 19, 2008

Question: As Freddie Mac and Fannie Mae attempt to recover after a government bailout, my wife and I have become more and more interested in the health of other banks. We noticed that today Washington Mutual recently posted a huge loss of 3.3 billion dollars for the last quarter, and that this loss is part of a trend for that bank. Presumably this is still part of the home loan catastrophe the country is trying to recover from.

Our question though, is this: as banks like Washington Mutual struggle, how does a normal bank customer (not a bank “investor”) know how to digest this information? We know that the FDIC was designed to assure people not to make bank panicked bank runs, but aside from that assurance, how does one know whether to stay with a bank or not? What kinds of warning signs should a customer watch for? Thanks, David, Seattle,WA

Answer: First, don’t worry about the financial health of your bank so long as your accounts are covered by the FDIC. (By the way, one way to monitor the health of many banks is to watch their publically traded debt. Investors are sensitive to a banks financial condition and if the interest rate on a bank’s debt is going up relative to its peers that’s a signal that the market is getting nervous.)

Second, you want to evaluate your bank as a customer. Is service deteriorating? Is the bank hiking fees? Is its website easy to navigate and use? If you don’t like the way your bank is treating you then I would move your money. It’s much easier to judge bank service than bank finances.

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